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Commerce Exam  >  Commerce Test  >  Accountancy Class 12  >  Test: Accounting Ratios- Assertion & Reason Type Questions - Commerce MCQ

Accounting Ratios- Assertion & Reason Type Questions - Free with Solutions


MCQ Practice Test & Solutions: Test: Accounting Ratios- Assertion & Reason Type Questions (4 Questions)

You can prepare effectively for Commerce Accountancy Class 12 with this dedicated MCQ Practice Test (available with solutions) on the important topic of "Test: Accounting Ratios- Assertion & Reason Type Questions". These 4 questions have been designed by the experts with the latest curriculum of Commerce 2026, to help you master the concept.

Test Highlights:

  • - Format: Multiple Choice Questions (MCQ)
  • - Duration: 8 minutes
  • - Number of Questions: 4

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Test: Accounting Ratios- Assertion & Reason Type Questions - Question 1
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Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Higher the Gross Profit ratio, good for the business, lower ratio not good for the business.

Reason (R): It reflects the efficiency with which a firm produces its products. A high gross profit ratio indicates that the organization is able to produce at a relatively lower cost.

Detailed Solution: Question 1

The gross profit should be sufficient to cover all operating expenses and to build up reserves after paying all fixed interest charges and dividends.

Test: Accounting Ratios- Assertion & Reason Type Questions - Question 2
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Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Debt to Equity Ratio of 2 : 1 is considered satisfactory. Generally a Low Ratio is considered favourable.

Reason (R): This ratio indicates the proportionate claims of owners and outsiders on a firm's assets. High Ratio shows claims of outsiders are greater but Low Ratio shows outsiders claims are less.

Detailed Solution: Question 2

Debt equity ratio is calculated as Total outside liabilities/ Shareholders equity and so it can be said that it is the relationship between outsiders fund and shareholders funds.

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Test: Accounting Ratios- Assertion & Reason Type Questions - Question 3
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Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): A high operating ratio indicates a favourable position.

Reason (R): A high operating ratio leaves a high margin to meet non-operating expenses.

Detailed Solution: Question 3

(A): A high operating ratio indicates a favorable position.

  • In finance, the Operating ratio is a company's operating expenses as a percentage of revenue.
  • This financial ratio is most commonly used for industries that require a large percentage of revenues to maintain operations, such as railroads. In railroading, an operating ratio of 80 or lower is considered desirable. 
  • Operating Ratio refers to a metric used by a company to determine how efficient a company’s management is at keeping operating costs low while at the same time generating revenues or sales, by comparing the total operating expenses of a company to that of its net sales. 
  • A higher ratio would indicate that expenses are more than the company’s ability to generate sufficient revenue and may be considered inefficient.
  • Similarly, a relatively low ratio would be considered a good sign as the company’s expenses are less than that of its revenue.

(R): A high operating ratio leaves a high margin to meet non-operating expenses.

  • Operating Ratio = (Operating Expenses / Net Sales) * 100.
  • A low operating ratio means a high net profit ratio (i.e., more operating profit) and vice versa. 
  • It shows whether or not the cost component in the sales figure is within the normal range.
  • A high operating ratio leaves less margin to meet non-operating expenses.
  • The operating ratio is used to measure the operational efficiency of the management.

Hence Both Assertion And Reason Are Incorrect.

Test: Accounting Ratios- Assertion & Reason Type Questions - Question 4
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Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Liquid ratio reveals strength of liquidity of a business unit.

Reason (R): Liquid ratio is the one of the various ratios used to measure the ability of a company to meet its long-term debts.

Detailed Solution: Question 4

Liquid ratio analyses liquid assets and liquid liabilities of a business unit in order to assess the extent of liquidity.

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About this Commerce Practice Test

This test contains 4 MCQs on Accounting Ratios- Assertion & Reason Type Questions with detailed solutions for each question. It is part of the Accountancy Class 12 course on EduRev, designed to align with the current Commerce syllabus. Each solution explains not just the correct answer but also gives you an understanding of the topic — not just to attempt the question but also help you prepare for the exam with practice.

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If you found this Accounting Ratios- Assertion & Reason Type Questions MCQ Test helpful, you can further enhance your Commerce preparation with in-depth courses on EduRev, for all the subjects and topics available in Accountancy Class 12 course. The course offers:
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